China is losing water in US trade war

Water is hidden in everything we use, eat and wear. Crops must be irrigated, cotton for clothing must be washed, and fuel sources must be fracked and processed with water. Much like with carbon, water consumption has a footprint. It comprises not only the water we use for drinking, laundry and other daily needs, but also the hidden water in our products.

This “virtual” water plays a significant role in the global goods trade. As goods are shipped and traded around the world, the water used to make or grow them is therefore also traded. When significant changes in the trade status quo occur, so does a nation’s water imports or exports – and thus its overall water supply.

The US–China trade war is shifting the way water is spent between the two nations. In 2017, China was the United States’ largest trading partner. Before the imposition of tariffs, China exported many water-intensive products to the US, helping to make China the world’s largest exporter of hidden water, and the US the largest importer.

As trade between the two nations stymied, the “water balance” has also changed. For example, China imported zero soybeans from the United States in November 2018. Compared to November 2017, the 4.7 million tons it imported from the US not only represent US$1.8 billion of lost value for US farmers, but also 5.08 billion cubic metres of virtual water not received by China.

Under this new reality, the US and China must adjust their water budgets or else risk shortages. China’s per capita available freshwater supply is one quarter that of the US, making it especially at risk of a water shortage.

Despite the US’s significantly larger water resources, China exported a net 2.4 billion metric tons of virtual water to the US in 2012 – enough to support 6.3 million households for a year. Nearly half (46%) of this imbalance was accounted for by water used to manufacture general machinery and equipment in China, which was then shipped to the US. Another 19% went into textiles. Agriculture accounted for the next largest portion. Machines, clothes and crops are by far the most water-intensive goods traded between the US and China.

Both countries have tariffed many such goods. As trade in them has slowed, the water balance has shifted. Below, a list of tariffed goods from these three industries and their virtual water content (in litres per kilogram) indicates a clear difference in the virtual water tariffed by each country. China’s tariffed goods in these categories have approximately double the virtual water content of the US’s. As tariffed goods are traded less, this indicates China is now receiving comparatively less virtual water from the US, and the virtual water trade imbalance is increasing.

Water footprint and virtual water trade imbalance

*Copper’s water footprint depends on how it’s mined; this figure is an average of open pit and underground techniques. Sources: Waterfootprint.org; WellBeing; URS; USTR; WTO

In addition, overall goods traded, including goods unaffected by tariffs, between the US and China has changed. Since the trade war began in July 2018, the US has actually imported more Chinese goods than it did before. In the three months after tariffs were implemented, US exports of goods to China decreased by an average of 18% compared to the three months before. However, US imports of Chinese goods increased by 7% in the same period.

Surprisingly, the total trade imbalance of goods has increased by 17% since the beginning of the trade war – a 10-year high. As China exports even more goods to the US, and receives fewer in return, the water imbalance between the two nations will grow further.

For example, China’s textiles sector, which makes 65% of all clothing in the world, not only uses up to 40,000 litres of water per kilogram of textile, but also creates 600 litres of wastewater per kilogram. This chemical-ridden water often directly enters rivers and streams. As China continues to export more clothing, it doubly endangers its water supply – first, by sacrificing thousands of litres of freshwater, then again by polluting its rivers. Employing over 10 million workers, the future of China’s textile industry is uncertain unless its virtual water use is properly managed.

As trade talks resume, the United States and China should take the world’s most precious resource into consideration as they negotiate. As China sends increasingly more of its water abroad in the form of exports, the country’s ability to manufacture goods is put at risk. Without considering the impact of virtual water in traded goods, the United States and China risk endangering the very export-oriented industries that rely on an ample water supply.

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